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If multiple effects modify how damage will be dealt, the player who would be dealt damage or the controller of the creature that would be dealt damage chooses the order to apply the effects. For example, Mending Hands says, "Prevent the next 4 damage that would be dealt to target creature or player this turn." Suppose a spell would deal 5 damage to a player who has cast Mending Hands targeting himself or herself. That player can either (a) prevent 4 damage first and then let Furnace of Rath double the remaining 1 damage, taking 2 damage, or (b) double the damage to 10 and then prevent 4 damage, taking 6 damage.

This ruling is the result of Comprehensive rule 616.1

616.1. If two or more replacement and/or prevention effects are attempting to modify the way an event affects an object or player, the affected object's controller (or its owner if it has no controller) or the affected player chooses one to apply, following the steps listed below. If two or more players have to make these choices at the same time, choices are made in APNAP order (see rule 101.4).

There are some caveats under rules 616.1a-e which specify when some effects must be applied first, but I don't see that they apply in this particular case.

So therefore, since each player and their creatures are taking damage, they each get to decide the order to apply the replacement effects. They decide how the damage will be applied to them and their creatures in APNAP order.

101.4. If multiple players would make choices and/or take actions at the same time, the active player (the player whose turn it is) makes any choices required, then the next player in turn order (usually the player seated to the active player's left) makes any choices required, followed by the remaining nonactive players in turn order. Then the actions happen simultaneously. This rule is often referred to as the "Active Player, Nonactive Player (APNAP) order" rule.

There are three replacement effects. I will summarize:

Furnace of Wrath: Double the damage.

Hostility: Prevent damage to opponent, get 3/1 token for each 1 damage.

Hallow: Prevent all damage, gain life

This means there are six possible orders the replacement effects are applied. If Hallow is applied first, the order of the next two effects is irrelevant. Each player gets to choose the order the effects are applied, and they are applied simultaneously! So it doesn't really matter who's turn it is, although that might affect each player's choices.

Volcanic Fallout does 2 damage to each creature and each player. I will use Y as the number of creatures the selecting player controls. Each player chooses the order they are applied to themselves and their creatures, so here's the possible results for replacement effects:

123: 4 tokens if player B or C, 4Y life (4 + 4Y life if player A)

132: 0 tokens, 4 + 4Y life

213: 2 tokens if player B or C, 4Y life (4 + 4Y life if player A)

231: 2 tokens if player B or C, 2Y life (2 + 2Y life if player A)

312 or 321: 0 tokens, 2 + 2Y life

Player A, presumably, wants to maximize the number of tokens generated so will choose order 123. Player B will presumably want to minimize the number of tokens and maximize their life gain so will choose 132. Player C, presumably, doesn't want tokens and wants to minimize player B's life gain so will choose 312 or 321.

But if damage is applied simultaneously, we have contradictory results! What happens? The key is CR 616.1. Player A has no control over the order of replacement effects for the damage taken by his opponents, so unless, for some reason, Players B or C want him to get tokens, he won't. Even if Player A chooses order 123, that order only applies to the damage applied to Player A and the creatures controlled by Player A.

Therefore Player A should choose order 231, 312 or 321.

Basically it's as if Volcanic Fallout was split into three spells, and each player chooses the order that the damage applied to them and their creatures is prevented and doubled. The amount of life gained by player B will be determined by the number of creatures on the board, as this will affect everyone's decision.

Yes. You got it right. I read "controller" and jumped the gun. CURSE YOU COMP RULES!!!!
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Origami RobotJan 20 '12 at 18:24

1

I do think you can clean up the player/choices breakdown. It is kind of hard to extract the info. There is so much happening here.
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Origami RobotJan 20 '12 at 18:37

@OrigamiRobot I'm having second thoughts. The replacement effects are applied when the damage occurs. The chooses one to apply part of 616.1 means that something that affects all damage will make further choices irrelevant. I think we both got it wrong.
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ghoppeJan 20 '12 at 18:40

Yes, but that just means one at a time. 616.1e says to repeat the procedure of choosing one. Come to chat and we can discuss.
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Origami RobotJan 20 '12 at 18:43

@OrigamiRobot right, but my point is that the procedure is repeated after the effect is applied.
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ghoppeJan 20 '12 at 18:54

I love asking this question, because even people who consider themselves rules gurus usually get it wrong (including me). Final Edit: I think I have it right now.

ghoppe correctly identified the rules that handle multiple prevention effects trying to modify the same event.

Comprehensive Rules

616.1. If two or more replacement and/or prevention effects are attempting to modify the way an event affects an object or player, the affected object's controller (or its owner if it has no controller) or the affected player chooses one to apply, following the steps listed below. If two or more players have to make these choices at the same time, choices are made in APNAP order (see rule 101.4).

101.4. If multiple players would make choices and/or take actions at the same time, the active player (the player whose turn it is) makes any choices required, then the next player in turn order (usually the player seated to the active player's left) makes any choices required, followed by the remaining nonactive players in turn order. Then the actions happen simultaneously. This rule is often referred to as the "Active Player, Nonactive Player (APNAP) order" rule.

Rule 101.4 is just reminding us what APNAP order is, and the fact that even though the choices each player make have an order, the result of their choices are applied simultaneously.

Lets Look at the actual text of each card (ignoring parts that don't apply), so that we know what the event is, and what is trying to replace that event.

(Event) Volcanic Fallout: ~this~ deals 2 damage to each creature and each player.

Furnace of Rath: If a source would deal damage to a creature or player, it deals double that damage to that creature or player instead.

Hostility: If a spell you control would deal damage to an opponent, prevent that damage. Put a 3/1 red Elemental Shaman creature token with haste onto the battlefield for each 1 damage prevented this way.

Hallow: Prevent all damage target spell would deal this turn. You gain life equal to the damage prevented this way.

The event that Volcanic Fallout is creating, can be thought of as 4 individual events that happen simultaneously. You will see later why it is easier to think of the event in these terms.

deal 2 damage to Player A

deal 2 damage to Hostility

deal 2 damage to Player B

deal 2 damage to Player C

Player A (Active Player)

Rule 101.4 lets Player A make choices first, because they are the active player. According to Rule 616.1, they may only get to make choices for replacement effects for which they are the affected player/affected object's controller. This means that they completely ignore Hostility's replacement effect, because it is only replacing damage to opponents. This leaves Player A with two choices.

13: Apply Furnace of Rath, then Hallow. (Result Player B +12 Life)

31: Apply Hallow, then Furnace of Rath. (Result Player B +8 Life)

(1)(3) If Player A chooses to apply Furnace of Rath first, the event looks like this:

deal (double) 2 damage to Player A

deal (double) 2 damage to Hostility

deal 2 damage to Player B

deal 2 damage to Player C

Then because there are still replacement effects to be applied, Player A applies Hallow to the event:

(Prevent all damage) 4 damage to Player A, Player B gains 4 life.

(Prevent all damage) 4 damage to Hostility, Player B gains 4 life.

(Prevent all damage) 2 damage to Player B, Player B gains 2 life.

(Prevent all damage) 2 damage to Player C, Player B gains 2 life.

Since Hallow prevented all damage from the event, the other players do not have a choice of applying Hostility's prevention effect.

Result Player B gains 12 Life

(3)(1) If Player A chooses to apply Hallow first, (then Furnace of Rath has no effect), the event looks like this:

(Prevent all damage) 2 damage to Player A, Player B gains 2 life.

(Prevent all damage) 2 damage to Hostility, Player B gains 2 life.

(Prevent all damage) 2 damage to Player B, Player B gains 2 life.

(Prevent all damage) 2 damage to Player C, Player B gains 2 life.

Result Player B +8 Life

Player C (Active Player)

If instead, Player C is the active player, they can choose when to apply all prevention effects, including Hostility since it is preventing damage to them. Rule 101.4 lets Player C make choices first. This leaves Player C with 6 choices for replacement effect order. (Parenthesis indicate that the replacement effect has nothing to replace for that player).

(1) If Player C chooses to apply Furnace of Rath first, the event looks like this:

- deal 2 damage to Player A

- deal 2 damage to Hostility

- deal 2 damage to Player B

- deal (double) 2 damage to Player C

(2)(3) Then Player C has two choices. Apply Hostility first, Hallow has nothing left to prevent. Proceed to Active Player A for his choices:

(2) Hostility

- deal 2 damage to Player A

- deal 2 damage to Hostility

- deal 2 damage to Player B

- (put) 4 (3/1 tokens) into play under Player A's control.

Result Player A 4 tokens, plus Player A's choices

(3)(2) or Player C Applies Hallow preventing all the spells damage (no more decisions for any other player):

(3) Hallow

- (Prevent all damage) 2 damage to Player A, Player B gains 2 life.

- (Prevent all damage) 2 damage to Hostility, Player B gains 2 life.

- (Prevent all damage) 4 damage to Player B, Player B gains 4 life.

- (Prevent all damage) 2 damage to Player C, Player B gains 2 life.

Result Player B +10 Life

(2) If Player C chooses to apply Hostility first, the event looks like this:

- deal 2 damage to Player A

- deal 2 damage to Hostility

- deal 2 damage to Player B

- (put) 2 (3/1 tokens) into play under Player A's control.

Since Player A is no longer an affected player (Hostility has prevented all damage to them and any other permanents they are the owner of).

Result Player A 2 tokens, plus *Player A's choices*

(3) If Player C chooses to apply Hallow first, the event looks like this:

- (Prevent all damage) 2 damage to Player A, Player B gains 2 life.

- (Prevent all damage) 2 damage to Hostility, Player B gains 2 life.

- (Prevent all damage) 2 damage to Player B, Player B gains 2 life.

- (Prevent all damage) 2 damage to Player C, Player B gains 2 life.

Since Hallow has prevented all damage, the remaining events have no effect.

Result Player B +8 Life

Player B (Active Player)

If Player B is the active player, they will have the exact same 6 choices for the order of replacement effects as Player C, and the same possible outcomes when Player C was the active player. The only difference is, if they choose to apply the effects of Hostility before Hallow, then they need to add in the additional choices that Player C could make (which might also lead to choices that Player A could make). This is because applying Hostility prevents all remaining damage to the affected player. If instead each player controlled some creatures, they would need to apply the effects of all three replacement effects, because Hostility only prevents damage to players leaving Hallow with the ability to prevent damage to affected creatures that the active player controls.

Conclusion

Even with such a simple example, you can tell how the order of replacement effects can have a great effect on the results of an event. With just one event, and 3 replacement effects, you have a wide diversity of outcomes. You can think of the possible outcomes as a decision tree, with the Active Player making choices and either leading to a lower branch or ending. Player A will receive either (0/2/4/6/8 tokens, and Player B will gain 4/6/8/10/12 life) all dependent upon who the Active Player is, and the decisions they make.

-Player B Active (Player A +8/+10 life or Player A +2/+4 tokens and proceed to C Active Player add results from their decisions)

-Player C Active (Player A +8/+10 life or Player A +2/+4 tokens and proceed to A Active Player add results from their decisions)

During all this, I forgot Hostility was a creature too (and that Player A only has two effects to choose) @ghoppe and I were talking earlier. Would Player A make the choices for himself separate from his choices for his creature?
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Origami RobotJan 21 '12 at 4:58

Also, each player always gets to make choices regardless of who the AP is. Otherwise it would simply say the AP chooses the order.
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Origami RobotJan 21 '12 at 5:09

I disagree. Choosing Hallow's effect does not mean it happens at that time. Other players still make choices. If Player B chooses Hostility's effect to prevent damage (by choosing to apply it first) then Hallow does not have that damage to prevent anymore.
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Origami RobotJan 21 '12 at 12:39

@OrigamiRobot, If Player B is AP, and chooses to apply Hostility's effect to prevent damage, he only does so for the damage for which he is the affected player. You are correct that at that point, he cannot choose to apply Hallow's replacement effect, because he is no longer has any relevant replacement effects for which he is the affected player/object's controller. I will edit my answer to correct this.
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user1873Jan 21 '12 at 14:49